LOCAL LAND USE REGULATION OF OIL AND GAS DEVELOPMENT

• Jurisdiction: United States

Surface Use for Mineral Development in the New West
(Feb 2008)
CHAPTER 11A
LOCAL LAND USE REGULATION OF OIL AND GAS DEVELOPMENT
Bruce M. Kramer ^*
Maddox Professor of Law Emeritus
Texas Tech University School of Law
Of Counsel
McGinnis Lochridge & Kilgore, L.L.P.
Houston, Texas

I INTRODUCTION

Today, the regulation of oil and gas exploration and production activities by substate governmental units has reemerged after a lengthy quiescent period.² Oil and gas activities obviously take place where the oil and gas is located. Historically that has been in rural areas, although there are clear exceptions.³ Population growth and urban sprawl has brought the citizenry to where the oil and gas wells are. People who move to the country not only want urban amenities, they also want the "peace and quiet" that they believe exists in the idyllic rural surroundings. One does not want to exchange the noise of the bus or emergency medical vehicle for the noise of the "pump jack" and the drilling rig. An additional factor causing this increase in substate unit regulation is the expansion of land use powers from municipalities to counties. Historically, municipalities were the substate units that engaged in land use regulation. Counties, the usual provider of governmental services in the rural regions of the United States, were often the stepchild of substate units lacking most of the traditional police powers exercised by the cities. In addition, counties were often left out of the home rule movement that transformed local governmental law in the 20^th Century. As will be explained later, the concept of home rule gives substate units substantially greater freedom to exercise the police power than had existed prior to the adoption of constitutional and statutory home rule regimes. All of these developments now make the understanding of local land use regulatory mechanisms important for all of the interested parties in oil and gas development, royalty interest owners, working interest owners and surface owners.

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II A PRIMER ON LOCAL GOVERNMENTAL ZONING POWERS

Land use regulation through zoning, planning and subdivision regulatory mechanisms has a reasonably long history.⁴ New York City enacted the first comprehensive zoning ordinance in 1916. But it was two subsequent events that led to the widespread use of zoning throughout the urban areas of the United States. The most important of the two was the Supreme Court's "blessing" of zoning as being a constitutionally valid exercise of the police power in the landmark decision of Village of Euclid v. Ambler Realty Co.⁵ The second event was the development of the Standard Zoning Enabling Act and the Standard Planning Enabling Act by the United States Department of Commerce under the guidance of Herbert Hoover in 1924. Within a few years of these two events, over 45 states had adopted statutes authorizing at least some of their substate units to engage in comprehensive zoning and/or planning efforts.⁶ Euclid and the SZEA eliminated the legal or constitutional constraints on the exercise of comprehensive land use regulatory powers by substate units. Clearly the political climate was such that within a relatively short period of time, zoning at the city level became a nearly universal practice.⁷

1 Home Rule Authority

For local governmental units that have home rule authority, either granted by the State Constitution or by state legislation, the power to zone arises from the charter of the local governmental unit. Essentially a home rule provision transfers to the substate unit, the full breadth and extent of the police power that otherwise resides in the State Legislature. Grants of home rule power differ from state-to-state, but for our purposes, the major categories of home rule power deal with whether that power is preemptible or non-preemptible. Most states provide for preemptible home rule power.⁸ Texas is a good example of a preemptible home rule state.⁹ A preemptible home rule system means that while substate units have all of the power that the State has, the State may, through the exercise of its legislative prerogative, limit, condition or abrogate the substate unit's power. But there are powerful political forces in play that in many cases prevent the enactment of state statutes that deprive sub-state units of their powers. In Ohio, the Legislature originally enacted a statute designed to set forth the limits of certain sub-state unit's powers to regulate oil and gas operations.¹⁰ The statute, however, did not attempt to preempt all local regulation of oil and gas drilling operations. It provided in part:

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This chapter or rules adopted under it shall not be construed to prevent any municipal corporation, county, or township from enacting and enforcing health and safety standards for the drilling and exploration for oil and gas, provided that such standards are not less restrictive than this chapter or the rules adopted thereunder by the division of mineral resources management. No county or township shall adopt or enforce any ordinances, resolutions, rules, or requirements relative to the minimum acreage requirements for drilling units; minimum distances from which a new well or related production facilities may be drilled or an existing well deepened, plugged back, or reopened to .... No county or township shall require any permit or licenses for the drilling, operation, production, plugging, or abandonment of any oil or gas well, not any fee, bond or other security, or insurance for any activity associated with the drilling, operation, production, or abandonment of a well, except for the permit provided for in section 4513.34 of the Revised Code and any bond or other security associated therewith.¹¹

The Legislature authorized partial preemption of some sub-state units' powers but clearly did not intend to remove sub-state regulation.¹² But even this attempt to set up a preemption regime was repealed by the Legislature in 2004. Nonetheless it remains clear that the State Legislature may preempt sub-state unit regulation by either general law cities or preemptible home rule cities should it so choose. To date, however, only Louisiana has a statute that totally preempts substate regulation of oil and gas operations.

Two oil and gas producing states, California,¹³ and Colorado¹⁴ have non-preemptible home rule constitutional provisions. In theory, that means that as to matters relating exclusively to local or municipal affairs, the state has no power to act. In other words, the home rule unit has sole authority to regulate on matters relating to local or municipal affairs. As to matters of statewide concern or hybrid state/local concern, these two states treat local powers as preemptible. As a practical matter, the regulation of oil and gas operations is not going to be treated as a matter of exclusive local concern, therefore the preemption analysis for these states is similar to the analysis in preemptible home rule states.

2 General Law Authority

Prior to the adoption of home rule authority, all substate units were treated as essentially "creatures" of the state.¹⁵ General law local governmental units could only exercise such power as was expressly granted them by the State Legislature. In addition, under Dillon's Rule, a common law doctrine employed by many courts, the grant of power to substate units is to be narrowly interpreted.¹⁶ The principal purpose underlying the development of the SZEA in the 1920s was to provide a model enabling

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act to be passed by state legislatures clearly giving substate units the power to zone and plan. Without such an enabling act, substate units may not have had the authority to zone. Concurrent with the trend towards the granting of home rule authority, many state legislatures have granted general law cities equivalent powers without the need to attain home rule status. For example, Texas provides that all general law municipalities in the state have the power "to adopt ordinances for good government, peace or order which are necessary or proper for carrying out a power granted by law."¹⁷ While cities in most states have substantial home rule or enabling authority to engage in zoning and planning regulation, other types of sub-state units, including counties, do not possess analogous authority. Thus counties in Texas, in general, lack the power to zone and plan.¹⁸ But in some 37 states, counties may possess home rule power.¹⁹ Whether or not such power is exercised will depend on many factors but as counties gain population the pressure to regulate oil and gas drilling and production activities will undoubtedly increase.

3 Constitutionality

As discussed above, the constitutionality of zoning regulation was a hotly debated issue until Euclid was decided. Prior to Euclid several state supreme courts had invalidated zoning efforts using a substantive due process argument.²⁰ Euclid involved a facial substantive due process attack on a zoning ordinance that divided the City into a hierarchy of zoning districts from single family residential to industrial. Even though the owner of the land in question alleged that the market value of the land would be diminished from $ 10,000/acre to $ 2500/acre, the Supreme Court found that the comprehensive zoning ordinance on its face had a substantial relation to the public health, safety, morals or general welfare. At that time the regulatory takings jurisprudence set in motion by Justice Holmes' opinion in Pennsylvania Coal Co v. Mahon,²¹ had not fully blossomed so that the Euclid opinion may not be a definitive statement on the regulatory takings limits on zoning of oil and gas operations.

While Euclid involved a facial attack on a zoning ordinance, the Supreme Court shortly after Euclid decided Nectow v. City of Cambridge,²² an as-applied challenge to a zoning ordinance. While Euclid had taken a "soft glance" or deferential...